Geof, I decided to do my example over lunch, and please let me know if you think that my example flawed...
Let the suffix S denote the action or desire to sell… offering shares in the market
Let the suffix B denote the action or desire to buy
Let the Market Maker be MM
Let the public be PU
The public will be buying and selling the stock
The market maker will either sell or buy to induce movement in the desired direction.
So, MM-S would indicate the market maker's desire to sell, and PU-B would indicate the public's desire to buy.
Assume that 5 M shares of the stock will be offered for sale by the public.
If we hypothesize that from past trading sessions for the given stock, the volume of shares traded will be between 15 and 30 M.
Assume the current price is $70/share
Scenario I – Market maker wants to drop the price.
MM-S 40M @ 70
PU-B 5M @ 70
PU-S 5M @ 70
MM-S 35M @ 69 starting the chain reaction by offering the shares lower than the public.
PU-B 5M @ 69
PU-S 5M @ 69
MM-S 30M @ 68
PU-B 5M @ 68
PU-S 5 M @ 68
MM-S 25 M @ 67
PU-B 5M @ 67
PU-S 5 M @ 67
MM-S 20M @ 66
PU-B 5M @ 66
PU-S 5 M @ 66
MM-S 15 M @ 65
PU-B 5M @ 65
PU-S 5 M @ 65
At this stage, the trading volume of that stock has been reached. However, the public realizes that the stock is dropping and doesn't know what to make of it… so the chain reaction is accelerated with more of the public wanting to sell driving the price lower by creating more supply than demand. Same chain as above, but this time the public is offering and the market maker is watching…
MM stopped selling when the price reached 65 or whenever the chain reaction is accelerated by the public's selling. Note that MM sold only 30M at an average price of $67.50, but now the public is starting to sell and the price drops another 5 or points to 60, at which point the market maker starts to buy.
So you see from my simplistic and probably naïve example, the market maker can drive the price of shares down to buy them at a lower price. The same scenario can hold if the MM wants to push the price higher… simply not offer any shares for trading and just changing the owners of the shares and taking their bid ask spread until a desired high enough price is reached.
What controls the movement is the volume and the action of the MM and when you have milions of it, you can do it...
best regards
amein
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